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Altair Engineering Inc.

08/01/2024 | Press release | Distributed by Public on 08/01/2024 14:46

Quarterly Report for Quarter Ending June 30, 2024 (Form 10-Q)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38263

ALTAIR ENGINEERING INC.

(Exact name of registrant as specified in its charter)


Delaware		38-2591828
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1820 East Big Beaver Road, Troy, Michigan		48083
(Address of principal executive offices)		(Zip Code)

(248) 614-2400

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock $0.0001 par value per share	ALTR	The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

On July 16, 2024, there were 59,427,617shares of the registrant's Class A common stock outstanding and 25,458,574shares of the registrant's Class B common stock outstanding.

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2024

INDEX


					Page

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements - Unaudited	3

		a)	Consolidated Balance Sheets		3

		b)	Consolidated Statements of Operations		4

		c)	Consolidated Statements of Comprehensive Income		5

		d)	Consolidated Statements of Changes in Stockholders' Equity		6

		e)	Consolidated Statements of Cash Flows		8

		f)	Notes to Consolidated Financial Statements		9

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

	Item 4.	Controls and Procedures	34

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	35

	Item 1A.	Risk Factors	35

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

	Item 3.	Defaults Upon Senior Securities	35

	Item 4.	Mine Safety Disclosures	35

	Item 5.	Other Information	35

	Item 6.	Exhibits	36

SIGNATURES				37

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	June 30, 2024			December 31, 2023
(In thousands)	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	507,008			$	467,459
Accounts receivable, net		126,560				190,461
Income tax receivable		17,682				16,650
Prepaid expenses and other current assets		28,582				26,053
Total current assets		679,832				700,623
Property and equipment, net		38,463				39,803
Operating lease right of use assets		31,816				30,759
Goodwill		459,070				458,125
Other intangible assets, net		77,537				83,550
Deferred tax assets		9,120				9,955
Other long-term assets		40,119				40,678
TOTAL ASSETS	$	1,335,957			$	1,363,493
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,002			$	8,995
Accrued compensation and benefits		39,819				45,081
Current portion of operating lease liabilities		8,057				8,825
Other accrued expenses and current liabilities		41,508				48,398
Deferred revenue		123,439				131,356
Current portion of convertible senior notes, net		-				81,455
Total current liabilities		216,825				324,110
Convertible senior notes, net		226,518				225,929
Operating lease liabilities, net of current portion		24,568				22,625
Deferred revenue, non-current		28,745				32,347
Other long-term liabilities		47,995				47,151
TOTAL LIABILITIES		544,651				652,162
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock ($0.0001par value), authorized 45,000shares, noneissued and outstanding		-				-
Common stock ($0.0001par value)
Class A common stock, authorized 513,797shares, issued and outstanding 59,198 and 55,240shares as of June 30, 2024, and December 31, 2023, respectively		5				5
Class B common stock, authorized 41,203shares, issued and outstanding 25,471 and 26,814shares as of June 30, 2024, and December 31, 2023, respectively		3				3
Additional paid-in capital		939,691				864,135
Accumulated deficit		(119,103	)			(130,503	)
Accumulated other comprehensive loss		(29,290	)			(22,309	)
TOTAL STOCKHOLDERS' EQUITY		791,306				711,331
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,335,957			$	1,363,493

See accompanying notes to consolidated financial statements.

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,			Six Months Ended June 30,
(in thousands, except per share data)	2024			2023			2024		2023
Revenue
License	$	92,699			$	87,738		$	210,406		$	200,147
Maintenance and other services		42,724				37,583			83,446			74,817
Total software		135,423				125,321			293,852			274,964
Engineering services and other		13,372				15,840			27,855			32,231
Total revenue		148,795				141,161			321,707			307,195
Cost of revenue
License		3,152				3,981			7,642			8,805
Maintenance and other services		16,199				13,639			30,365			28,065
Total software		19,351				17,620			38,007			36,870
Engineering services and other		11,165				13,177			23,402			26,662
Total cost of revenue		30,516				30,797			61,409			63,532
Gross profit		118,279				110,364			260,298			243,663
Operating expenses:
Research and development		55,570				55,277			107,903			108,528
Sales and marketing		46,475				44,982			90,909			88,474
General and administrative		19,294				18,622			37,055			36,573
Amortization of intangible assets		7,629				7,625			15,067			15,439
Other operating (income) expense, net		(786	)			127			(1,668	)		5,732
Total operating expenses		128,182				126,633			249,266			254,746
Operating (loss) income		(9,903	)			(16,269	)		11,032			(11,083	)
Interest expense		1,604				1,528			3,180			3,054
Other income, net		(5,750	)			(4,195	)		(9,707	)		(7,808	)
(Loss) income before income taxes		(5,757	)			(13,602	)		17,559			(6,329	)
Income tax (benefit) expense		(610	)			8,678			6,159			17,910
Net (loss) income	$	(5,147	)		$	(22,280	)	$	11,400		$	(24,239	)
(Loss) earnings per share, basic
(Loss) earnings per share	$	(0.06	)		$	(0.28	)	$	0.14		$	(0.30	)
Weighted average shares		83,607				79,986			83,097			80,088
(Loss) earnings per share, diluted
(Loss) earnings per share	$	(0.06	)		$	(0.28	)	$	0.13		$	(0.30	)
Weighted average shares		83,607				79,986			87,397			80,088

See accompanying notes to consolidated financial statements.

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,			Six Months Ended June 30,
(in thousands)	2024			2023			2024		2023
Net (loss) income	$	(5,147	)		$	(22,280	)	$	11,400		$	(24,239	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation (net of tax effect of $0for all periods)		(2,067	)			(1,340	)		(7,096	)		5,892
Retirement related benefit plans (net of tax effect of $0, $(79), $0, and $(79), respectively)		81				(70	)		115			(51	)
Total other comprehensive (loss) income		(1,986	)			(1,410	)		(6,981	)		5,841
Comprehensive (loss) income	$	(7,133	)		$	(23,690	)	$	4,419		$	(18,398	)

See accompanying notes to consolidated financial statements.

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)



														Accumulated
	Common stock		Additional				other		Total
	Class A		Class B			paid-in	Accumulated		comprehensive		stockholders'
(in thousands)	Shares		Amount			Shares	Amount		capital		deficit			loss		equity
Balance as of December 31, 2023		55,240		$	5		26,814		$	3		$	864,135		$	(130,503	)	$	(22,309	)	$	711,331
Net income		-			-		-			-			-			16,547			-			16,547
Issuance of common stock for acquisitions		35			-		-			-			75			-			-			75
Issuance of common stock for employee stock purchase program		64			-		-			-			4,127			-			-			4,127
Exercise of stock options		540			-		-			-			19,844			-			-			19,844
Vesting of restricted stock		303			-		-			-			-			-			-			-
Conversion of Class B to Class A common stock		730			-		(730	)		-			-			-			-			-
Stock-based compensation		-			-		-			-			15,999			-			-			15,999
Foreign currency translation, net of tax		-			-		-			-			-			-			(5,029	)		(5,029	)
Retirement related benefit plans, net of tax		-			-		-			-			-			-			34			34
Balance as of March 31, 2024		56,912			5		26,084			3			904,180			(113,956	)		(27,304	)		762,928
Net loss		-			-		-			-			-			(5,147	)		-			(5,147	)
Settlement of convertible senior notes		797			-		-			-			-			-			-			-
Issuance of common stock for acquisitions		188			-		-			-			516			-			-			516
Exercise of stock options		598			-		-			-			17,640			-			-			17,640
Vesting of restricted stock		90			-		-			-			-			-			-			-
Conversion of Class B to Class A common stock		613			-		(613	)		-			-			-			-			-
Stock-based compensation		-			-		-			-			17,355			-			-			17,355
Foreign currency translation, net of tax		-			-		-			-			-			-			(2,067	)		(2,067	)
Retirement related benefit plans, net of tax		-			-		-			-			-			-			81			81
Balance as of June 30, 2024		59,198		$	5		25,471		$	3		$	939,691		$	(119,103	)	$	(29,290	)	$	791,306

See accompanying notes to consolidated financial statements.

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)



															Accumulated
	Common stock			Additional				other		Total
	Class A			Class B			paid-in	Accumulated		comprehensive		stockholders'
(in thousands)	Shares			Amount			Shares	Amount		capital		deficit			loss		equity
Balance as of December 31, 2022		52,277			$	5		27,745		$	3		$	721,307		$	(121,577	)	$	(30,002	)	$	569,736
Net loss		-				-		-			-			-			(1,959	)		-			(1,959	)
Issuance of common stock for acquisitions		34				-		-			-			-			-			-			-
Repurchase and retirement of common stock		(91	)			-		-			-			(4,256	)		-			-			(4,256	)
Issuance of common stock for employee stock purchase program		92				-		-			-			3,648			-			-			3,648
Exercise of stock options		265				-		-			-			10,324			-			-			10,324
Vesting of restricted stock		336				-		-			-			-			-			-			-
Conversion of Class B to Class A common stock		240				-		(240	)		-			-			-			-			-
Stock-based compensation		-				-		-			-			22,161			-			-			22,161
Foreign currency translation, net of tax		-				-		-			-			-			-			7,232			7,232
Retirement related benefit plans, net of tax		-				-		-			-			-			-			19			19
Balance as of March 31, 2023		53,153				5		27,505			3			753,184			(123,536	)		(22,751	)		606,905
Net loss		-				-		-			-			-			(22,280	)		-			(22,280	)
Exercise of stock options		382				-		-			-			13,264			-			-			13,264
Vesting of restricted stock		86				-		-			-			-			-			-			-
Conversion of Class B to Class A common stock		330				-		(330	)		-			-			-			-			-
Stock-based compensation		-				-		-			-			23,736			-			-			23,736
Foreign currency translation, net of tax		-				-		-			-			-			-			(1,340	)		(1,340	)
Retirement related benefit plans, net of tax		-				-		-			-			-			-			(70	)		(70	)
Balance as of June 30, 2023		53,951			$	5		27,175		$	3		$	790,184		$	(145,816	)	$	(24,161	)	$	620,215

See accompanying notes to consolidated financial statements.

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
(In thousands)	2024			2023
OPERATING ACTIVITIES:
Net income (loss)	$	11,400			$	(24,239	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		19,557				19,488
Stock-based compensation expense		33,354				45,897
Deferred income taxes		(367	)			2,015
Loss on mark-to-market adjustment of contingent consideration		189				7,987
Other, net		1,166				1,335
Changes in assets and liabilities:
Accounts receivable, net		61,360				45,077
Prepaid expenses and other current assets		(3,647	)			(3,166	)
Other long-term assets		164				(2,516	)
Accounts payable		(4,382	)			(5,529	)
Accrued compensation and benefits		(4,071	)			(6,591	)
Other accrued expenses and current liabilities		(2,834	)			4,857
Deferred revenue		(9,882	)			4,614
Net cash provided by operating activities		102,007				89,229
INVESTING ACTIVITIES:
Payments for acquisition of businesses, net of cash acquired		(13,680	)			(721	)
Capital expenditures		(5,004	)			(6,184	)
Other investing activities, net		(398	)			(1,452	)
Net cash used in investing activities		(19,082	)			(8,357	)
FINANCING ACTIVITIES:
Settlement of convertible senior notes		(81,729	)			-
Proceeds from the exercise of common stock options		37,227				23,507
Proceeds from employee stock purchase plan contributions		4,363				3,797
Payments for repurchase and retirement of common stock		-				(6,255	)
Other financing activities		-				(48	)
Net cash (used in) provided by financing activities		(40,139	)			21,001
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(3,295	)			(44	)
Net increase in cash, cash equivalents and restricted cash		39,491				101,829
Cash, cash equivalents and restricted cash at beginning of year		467,576				316,958
Cash, cash equivalents and restricted cash at end of period	$	507,067			$	418,787
Supplemental disclosure of cash flow:
Interest paid	$	2,303			$	2,121
Income taxes paid	$	3,649			$	8,901
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment in accounts payable and other current liabilities	$	344			$	427
Deferred payment obligations for acquisitions	$	1,178			$	-

See accompanying notes to consolidated financial statements.

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Organization and description of business

Altair Engineering Inc. ("Altair" or the "Company") is incorporated in the state of Delaware. The Company is a global leader in computational intelligence enabling organizations across broad industry segments to drive smarter decisions in an increasingly connected world. Altair delivers software and cloud solutions in the areas of simulation, high-performance computing ("HPC"), data analytics, and artificial intelligence ("AI"). Altair's products and services leverage computational science to drive innovation and intelligent decisions for a more connected, safe, and sustainable future. The Company is headquartered in Troy, Michigan.

Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial information. Accordingly, the accompanying statements do not include all the information and notes required by GAAP for complete financial statements. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements (and notes thereto) for the year ended December 31, 2023, included in the most recent Annual Report on Form 10-K filed with the SEC.

Use of estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its significant estimates including the stand alone selling price, or SSP, for each distinct performance obligation included in customer contracts with multiple performance obligations, valuation of acquired intangible assets in business combinations, the incremental borrowing rate used in the valuation of lease liabilities, the determination of the period of benefit for capitalized costs to obtain a contract, fair value of convertible senior notes, provision for credit loss, tax valuation allowances, liabilities for uncertain tax provisions, impairment of goodwill and intangible assets, useful lives of intangible assets, and stock-based compensation. Actual results could differ from those estimates.

Significant accounting policies

There have been no material changes to our significant accounting policies as of and for the six months ended June 30, 2024, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2023.

Change in Presentation of Revenue and Cost of Revenue

Effective in the first quarter of 2024, the Company changed the presentation of revenue and cost of revenue in its Consolidated Statements of Operations to combine the financial statement line items ("FSLIs") labeled "Software related services", "Client engineering services" and "Other" into one FSLI labeled "Engineering services and other". The change in presentation has been applied retrospectively and does not affect the software revenue, total revenue, software cost of revenue, or total cost of revenue amounts previously reported or have any effect on segment reporting.

Recent accounting guidance

Accounting standards not yet adopted

Reference Rate Reform- In March 2020, the FASB issued ASU 2020-04. Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. In October 2022, the FASB Board voted to amend the sunset date of ASU 2020-04 to December 31, 2024. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements and related disclosures and does not expect this guidance to have a material effect on its consolidated financial statements.

Segment Reporting- In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The update is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The ASU requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. The update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting the updated standard.

Income Taxes- In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which updates income tax disclosures related to the tax rate reconciliation and requires disclosure of income taxes paid by jurisdiction. The amendments are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively; however, retrospective application is permitted. The Company is currently evaluating this ASU to determine the effect on its related disclosures.

Revenue from contracts with customers

Disaggregation of revenue

The Company disaggregates its revenue by type of performance obligation and timing of revenue recognition as follows (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2024		2023			2024		2023
Term licenses and other software products	$	77,859		$	78,781		$	189,029	$	182,090
Perpetual licenses		14,840			8,957			21,377		18,057
Maintenance		39,734			36,041			78,377		71,642
Professional software services		2,990			1,542			5,069		3,175
Software related services		6,077			6,664			12,694		13,764
Client engineering services		6,554			8,034			13,011		15,810
Other		741			1,142			2,150		2,657
Total revenue	$	148,795		$	141,161		$	321,707	$	307,195

The Company derived approximately 12% of its total revenue through indirect sales channels for the six months ended June 30, 2024.

Costs to obtain a contract

As of June 30, 2024, and December 31, 2023, respectively, capitalized costs to obtain a contract were $4.5million and $4.3million recorded in Prepaid expenses and other current assets and $0.9million and $0.9million recorded in Other long-term assets in the Company's consolidated balance sheets. Sales commissions were $2.2million and $4.5million, respectively, for the three and six months ended June 30, 2024, and $2.1million and $4.1million, respectively, for the three and six months ended June 30, 2023. Sales commissions were included in Sales and marketing expense in the Company's consolidated statement of operations.

Contract assets

As of June 30, 2024, and December 31, 2023, respectively, contract assets were $5.7million and $5.2million included in Accounts receivable, net, and $3.3million and $2.7million included in Prepaid expenses and other current assets in the Company's consolidated balance sheets.

Deferred revenue

Approximately $96.3million of revenue recognized during the six months ended June 30, 2024, was included in deferred revenue at the beginning of the year.

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted revenue not yet recognized was $269.6million and $215.9million as of June 30, 2024 and 2023, respectively. Of the amount recorded as of June 30, 2024, the Company expects to recognize approximately 67%over the next 12months and the remainder thereafter.

Supplementary Information

Acquisitions

2024 Acquisitions

During the three months ended June 30, 2024, the Company completed twoacquisitions that were accounted for as business combinations under the acquisition method. The preliminary aggregate transaction consideration of $14.3million was allocated to assets acquired and liabilities assumed at their estimated fair values. The fair values assigned to the identifiable intangible assets acquired were based on estimates and assumptions determined by management. The allocation included $7.2million to developed technology, $2.7million to customer relationships, $0.4million to net liabilities acquired and $4.8million to goodwill, which is deductible for tax purposes. All goodwill was recorded in the Software segment. The Company expects to finalize the valuations as soon as practicable, but not later than one year from the acquisition dates. These acquisitions were financed with cash on hand. The operating results of each acquisition have been included in the consolidated financial statements since the respective dates of acquisition. The Company's transaction costs related to these 2024 acquisitions were not material.

Prior acquisitions

The Company recognized a $0.1million loss and a $0.2million loss, respectively, for the three and six months ended June 30, 2024, and a $1.0million loss and an $8.0million loss, respectively, for the three and six months ended June 30, 2023, from a mark-to-market adjustment of contingent consideration associated with a prior year acquisition. The mark-to-market adjustments were included in Other operating (income) expense, net in the consolidated statements of operations.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with original or remaining maturities of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value. Restricted cash is included in Other long-term assets on the consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets that sum to the total of the amounts reported in the consolidated statement of cash flows (in thousands):


	June 30,		December 31,
	2024		2023
Cash and cash equivalents	$	507,008		$	467,459
Restricted cash included in other long-term assets		59			117
Total cash, cash equivalents and restricted cash	$	507,067		$	467,576

Restricted cash represents amounts required for the payment of potential health insurance claims and term deposits for bank guarantees.

Property and equipment, net

Property and equipment consisted of the following (in thousands):


	June 30,		December 31,
	2024		2023
Land	$	8,374		$	8,376
Building and improvements		17,538			17,528
Computer equipment and software		47,724			45,678
Furniture, equipment and other		13,723			14,402
Leasehold improvements		8,744			8,380
Total property and equipment		96,103			94,364
Less: accumulated depreciation and amortization		57,640			54,561
Property and equipment, net	$	38,463		$	39,803

Depreciation expense was $2.3million and $4.5million, respectively, for the three and six months ended June 30, 2024, and $2.1million and $4.0million, respectively, for the three and six months ended June 30, 2023.

Other liabilities

The following table provides the details of other accrued expenses and current liabilities (in thousands):


	June 30,		December 31,
	2024		2023
Income taxes payable	$	11,776		$	12,239
Accrued VAT		5,908			8,710
Employee stock purchase plan obligations		4,391			4,155
Accrued professional fees		3,480			2,436
Accrued royalties		2,193			2,313
Billings in excess of cost		1,994			2,385
Obligations related to acquisition of businesses and technology		1,865			3,286
Non-income tax liabilities		1,753			2,473
Defined contribution plan liabilities		1,394			1,454
Other current liabilities		6,754			8,947
Total	$	41,508		$	48,398

The following table provides details of other long-term liabilities (in thousands):


	June 30,		December 31,
	2024		2023
Pension and other post-retirement liabilities	$	16,776		$	15,815
Income tax reserves		15,798			16,254
Deferred tax liabilities		12,294			12,870
Other long-term liabilities		3,127			2,212
Total	$	47,995		$	47,151

Other income, net

Other income, net consists of the following (in thousands):


	Three Months Ended June 30,			Six Months Ended June 30,
	2024			2023			2024		2023
Interest income	$	(5,896	)		$	(3,984	)	$	(11,618	)	$	(6,869	)
Foreign exchange loss (gain)		146				(211	)		1,911			(939	)
Other income, net	$	(5,750	)		$	(4,195	)	$	(9,707	)	$	(7,808	)

Goodwill and other intangible assets

Goodwill

The changes in the carrying amount of goodwill, which is attributable to the Software reportable segment, were as follows (in thousands):


Balance as of December 31, 2023	$	458,125
Acquisitions		4,809
Foreign currency translation		(3,864	)
Balance as of June 30, 2024	$	459,070

Other intangible assets

A summary of other intangible assets is shown below (in thousands):


	June 30, 2024
	Weighted average amortization period	Gross carrying amount		Accumulated amortization			Net carrying amount
Definite-lived intangible assets:
Developed technology	4-6 years	$	148,219		$	101,119		$	47,100
Customer relationships	7-10 years		60,651			41,314			19,337
Other intangibles	4-10 years		1,457			692			765
Total definite-lived intangible assets			210,327			143,125			67,202
Indefinite-lived intangible assets:
Trade names			10,335					10,335
Total other intangible assets		$	220,662		$	143,125		$	77,537


	December 31, 2023
	Weighted average amortization period	Gross carrying amount		Accumulated amortization			Net carrying amount
Definite-lived intangible assets:
Developed technology	4-6 years	$	142,368		$	90,729		$	51,639
Customer relationships	7-10 years		58,316			37,779			20,537
Other intangibles	4-10 years		1,459			563			896
Total definite-lived intangible assets			202,143			129,071			73,072
Indefinite-lived intangible assets:
Trade names			10,478					10,478
Total other intangible assets		$	212,621		$	129,071		$	83,550

Amortization expense related to intangible assets was $7.6million and $15.1million, respectively, for the three and six months ended June 30, 2024, and $7.6million and $15.4million, respectively, for the three and six months ended June 30, 2023.

Debt

Convertible senior notes

2027 Notes

In June 2022, the Company issued $230.0million aggregate principal amount of 1.750% convertible senior notes due in 2027 (the "2027 Notes"), which includes the initial purchaser's exercise in full of its option to purchase an additional $30.0million principal amount of the 2027 Notes, in a private offering. The net proceeds from the issuance of the 2027 Notes was $224.3million after deducting discounts, commissions and estimated issuance costs. The 2027 Notes bear interest at a rate of 1.750% per year, payable semi-annuallyin arrears on June 15 and December 15 of each year, which commenced onDecember 15, 2022.The 2027 Notes mature on June 15, 2027, unless, earlier repurchased or redeemed by the Company or converted pursuant to their terms. The 2027 Notes have an initial conversion rate of 13.9505shares of the Company's Class A common stock per $1,000principal amount of 2027 Notes, which is equivalent to an initial conversion price of approximately $71.68per share of its Class A common stock. Refer to the Company's consolidated financial statements for the year ended December 31, 2022, for details of the issuance of the 2027 Notes.

The Company may settle the 2027 Notes in cash, shares of Class A common stock or a combination of cash and shares of its Class A common stock, at the Company's election, in the manner and subject to the terms and conditions provided in the Indenture.

During the period ended June 30, 2024, the conditions allowing holders of the 2027 Notes to convert were not met. Therefore, the 2027 Notes remained classified as long-term debt on the consolidated balance sheet as of June 30, 2024.

2024 Notes

In June 2019, the Company issued $230.0million aggregate principal amount of 0.25% convertible senior notes due in 2024 (the "2024 Notes" and together with the 2027 Notes, the "Convertible Notes"), which included the underwriters' exercise in full of their option to purchase an additional $30.0million principal amount of the 2024 Notes, in a public offering. The net proceeds from the issuance of the 2024 Notes were $221.9million after deducting the underwriting discounts and commissions and estimated issuance costs. The 2024 Notes bore interest at a rate of 0.25% per year, payable semi-annuallyin arrears on June 1 and December 1 of each year.The 2024 Notes matured on June 1, 2024. The 2024 Notes had an initial conversion rate of 21.5049shares of the Company's Class A common stock per $1,000principal amount of 2024 Notes, which was equivalent to an initial conversion price of approximately $46.50per share of its Class A common stock. Refer to the Company's consolidated financial statements for the year ended December 31, 2023, for details of the issuance of the 2024 Notes.

During the year ended December 31, 2022, using proceeds from the issuance of the 2027 Notes, the Company entered into separate privately negotiated transactions with certain holders of the 2024 Notes to repurchase and retire $148.2million aggregate principal amount of the 2024 Notes for an aggregate amount of $192.4million of cash including accrued and unpaid interest.

As of December 31, 2023, $81.7million principal amount of the 2024 Notes remained outstanding.

During the three months ended June 30, 2024, the Company settled the remaining principal amount of the 2024 Notes totaling approximately $81.7million by paying cash for the principal amount of $81.7million and issuing 796,817shares of the Company's common stock, with a fair value of $70.8million.

The net carrying value of the 2027 and 2024 Notes was as follows (in thousands):


	June 30, 2024		December 31, 2023
	2027 Notes		2024 Notes			2027 Notes		2024 Notes
Principal	$	230,000		$	-		$	230,000	$	81,729
Less: unamortized debt issuance costs		3,482			-			4,071		274
Net carrying amount	$	226,518		$	-		$	225,929	$	81,455

The interest expense related to the 2027 and 2024 Notes was as follows (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2024		2023			2024		2023
Contractual interest expense	$	1,041		$	1,060		$	2,098	$	2,121
Amortization of debt issuance costs		406			435			863		899
Total	$	1,447		$	1,495		$	2,961	$	3,020

As of June 30, 2024, the "if converted value" of the 2027 Notes exceeded the principal amount by $84.7million.

Revolving credit facility

The Company has a $200.0million credit facility with a maturity date of December 31, 2025("2019 Amended Credit Agreement").

As of June 30, 2024, there were nooutstanding borrowings under the 2019 Amended Credit Agreement, there was $200.0million available for future borrowing, and the Company was in compliance with all the financial covenants. The 2019 Amended Credit Agreement is available for general corporate purposes, including working capital, capital expenditures, and permitted acquisitions.

For additional information about the 2019 Amended Credit Agreement, refer to the Company's consolidated financial statements for the year ended December 31, 2023, included in our Annual Report on Form 10-K.

Fair value measurements

The accounting guidance for fair value, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The framework for measuring fair value consists of a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1 - Quoted prices in active markets for identical assets and liabilities at the measurement date;

Level 2 - Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

An asset's or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The carrying value of cash and cash equivalents, accounts receivable, net and accounts payable approximate fair value due to their short maturities. Interest on the Company's line of credit is at a variable rate, and as such the debt obligation outstanding approximates fair value.

The carrying value of the Company's 2027 Notes are at face value less unamortized issuance costs. The estimated fair values of the 2027 Notes, which the Company has classified as Level 2 financial instruments, were determined based on quoted bid prices of the 2027 Notes on the last trading day of each reporting period. As of June 30, 2024, the estimated fair value of the 2027 Notes was $334.9million, and is presented for required disclosure purposes only. For further information on the Convertible Notes, see Note 6. - Debt.

Stock-based compensation

2017 stock-based compensation plan

In 2017, the Company's Board of Directors adopted the 2017 Equity Incentive Plan ("2017 Plan"), which was approved by the Company's stockholders. The 2017 Plan provides for the grant of incentive stock options to the Company's employees and any parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, other cash-based awards and other stock-based awards to the Company's employees, directors and consultants and the Company's parent, subsidiary, and affiliate corporations' employees and consultants. The 2017 Plan has 19,460,908authorized shares of the Company's Class A common stock reserved for issuance. As of June 30, 2024, the Company had 6,643,204shares of its common stock available for future issuances under the 2017 Plan.

The following table summarizes the restricted stock units, or RSUs, awarded under the 2017 Plan for the period:


	Number of RSUs
Outstanding as of December 31, 2023		1,086,351
Granted		366,364
Vested		(392,931	)
Forfeited		(13,845	)
Outstanding as of June 30, 2024		1,045,939

The weighted average grant date fair value of the RSUs granted during the six months ended June 30, 2024, was $79.68. The RSUs generally vest in fourequal annual installments. Total compensation cost related to nonvested awards not yet recognized as of June 30, 2024, totaled $102.6million, and is expected to be recognized over a weighted average period of 2.5years.

The following table summarizes the stock option activity under the 2017 Plan for the period:


	Number of options			Weighted average exercise price per share			Weighted average remaining contractual term (years)	Aggregate intrinsic value (in millions)
Outstanding as of December 31, 2023		7,602,078			$	52.81		7.8	$	238.3
Granted		417,459			$	79.19
Exercised		(753,504	)		$	49.72
Forfeited		(65,631	)		$	55.28
Outstanding as of June 30, 2024		7,200,402			$	54.63		7.6	$	312.8
Exercisable as of June 30, 2024		3,415,212			$	51.60		6.6	$	158.7

The total intrinsic value of the 2017 Plan stock options exercised during the six months ended June 30, 2024, was $29.1million.

2021 Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan ("ESPP") which allows eligible employees to purchase shares of common stock through payroll deductions and is intended to qualify under Section 423 of the Internal Revenue Code. The maximum number of shares available for issuance under the ESPP is 3,200,000shares of the Company's Class A common stock. As of June 30, 2024, the Company had 2,767,911shares of its common stock available for future issuances under the ESPP.

The purchase price for each share of common stock purchased under the ESPP will be 85% of the lower of (a) the fair market value per share on the first day of the applicable offering period or (b) the fair market value per share on the applicable purchase date.

The Company issued 64,309shares of common stock under the ESPP during the six months ended June 30, 2024. As of June 30, 2024 and December 31, 2023, respectively, $4.4million and $4.2million had been withheld on behalf of employees for future purchases under the ESPP due to the timing of payroll deductions and was reported in current liabilities. Stock-based compensation expense related to the ESPP was $0.7million and $1.4million, respectively, for the three and six months ended June 30, 2024, and $0.6million and $1.2million, respectively, for the three and six months ended June 30, 2023.

Stock-based compensation expense

Stock-based compensation expense was recorded as follows (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2024		2023			2024		2023
Cost of revenue - software	$	2,097		$	2,572		$	4,099	$	5,324
Research and development		6,618			9,943			12,978		18,686
Sales and marketing		4,979			7,581			9,499		15,172
General and administrative		3,661			3,640			6,778		6,715
Total stock-based compensation expense	$	17,355		$	23,736		$	33,354	$	45,897

Earnings (loss) per share

Basic (loss) earnings per share attributable to common stockholders is computed using the weighted average number of shares of common stock outstanding for the period, excluding dilutive securities, stock options, RSUs and ESPP shares. Diluted (loss) earnings per share attributable to common stockholders is based upon the weighted average number of shares of common stock outstanding for the period and potentially dilutive common shares, including the effect of dilutive securities, stock options, RSUs and ESPP shares under the treasury stock method.

The Company applies the if-converted method for convertible instruments when calculating diluted earnings per share. Under the if-converted method, shares related to convertible senior notes, to the extent dilutive, are assumed to be converted into common stock at the beginning of the period.

The following table sets forth the computation of the numerators and denominators used in the basic and diluted (loss) earnings per share amounts (in thousands, except per share data):


	Three Months Ended June 30,			Six Months Ended June 30,
	2024			2023			2024		2023
Numerator:
Net (loss) income	$	(5,147	)		$	(22,280	)	$	11,400	$	(24,239	)
Interest expense related to convertible notes, net of tax(1)		-				-			-		-
Numerator for diluted (loss) earnings per share	$	(5,147	)		$	(22,280	)	$	11,400	$	(24,239	)
Denominator:
Weighted average shares outstanding, basic		83,607				79,986			83,097		80,088
Effect of dilutive shares		-				-			4,300		-
Weighted average shares outstanding, diluted		83,607				79,986			87,397		80,088
Basic (loss) earnings per share	$	(0.06	)		$	(0.28	)	$	0.14	$	(0.30	)
Diluted (loss) earnings per share	$	(0.06	)		$	(0.28	)	$	0.13	$	(0.30	)

(1)

Interest expense related to the convertible notes has been excluded from the numerator for diluted earnings per share because its effect would have been anti-dilutive.

Anti-dilutive shares excluded from the computation of diluted (loss) earnings per share were as follows (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2024		2023		2024	2023
Stock options and ESPP shares		3,569		3,430		-	3,679
Convertible shares		3,819		4,967		3,209	4,967
Total shares excluded from calculation		7,388		8,397		3,209	8,646

10.

Income taxes

The Company's income tax expense and effective tax rate for the three and six months ended June 30, 2024 and 2023, were as follows (in thousands, except percentages):


	Three Months Ended June 30,			Six Months Ended June 30,
	2024			2023			2024		2023
Income tax (benefit) expense	$	(610	)		$	8,678		$	6,159		$	17,910
Effective tax rate		11	%			(64	%)		35	%		(283	%)

The tax rate is affected by the Company being a U.S. resident taxpayer, the tax rates in the U.S. and other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no benefit or expense is recognized due to a valuation allowance. The change in the effective tax rate for the six months ended June 30, 2024 as compared to June 30, 2023, was primarily attributable to the effects of tax elections made by the Company during the third quarter of 2023 that have a prospective impact on the Company's tax expense in 2024. The Company's effective tax rate for the six months ended June 30, 2024 and 2023 also includes net discrete benefit of $0.3million and expense of $11.6million, respectively, primarily related to changes in tax laws, withholding taxes on royalties, changes in reserves, changes in accruals for unremitted earnings and other adjustments.

11.

Accumulated other comprehensive loss

The components of accumulated other comprehensive loss were as follows (in thousands):


	Foreign currency translation			Retirement related benefit plans			Total
Balance as of December 31, 2023	$	(21,473	)		$	(836	)	$	(22,309	)
Other comprehensive income before reclassification		(7,096	)			-			(7,096	)
Amounts reclassified from accumulated other comprehensive income	-				115			115
Tax effects		-				-			-
Other comprehensive income		(7,096	)			115			(6,981	)
Balance as of June 30, 2024	$	(28,569	)		$	(721	)	$	(29,290	)

12.

Commitments and contingencies

Legal proceedings

From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company has received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend the Company, its partners, and its customers by determining the scope, enforceability, and validity of third-party proprietary rights, or to establish and enforce the Company's proprietary rights.

Effects of proceedings

The results of any current or future litigation cannot be predicted with certainty and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

13.

Segment information

The Company defines its operating segments as components of its business where separate financial information is available and used by the chief operating decision maker ("CODM") in deciding how to allocate resources to its segments and in assessing performance. The Company's CODM is its Chief Executive Officer.

The Company has identified tworeportable segments for financial reporting purposes: Software and Client Engineering Services ("CES"). The primary measure of segment operating performance is Adjusted EBITDA, which is defined as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, asset impairment charges and other special items as determined by management. Corporate headquarter costs are allocated to each segment.

The following tables are in thousands:



Three months ended June 30, 2024	Software		CES			All other		Total
Revenue	$	141,500		$	6,554		$	741		$	148,795
Adjusted EBITDA	$	17,310		$	419		$	(381	)	$	17,348


Three months ended June 30, 2023	Software		CES			All other		Total
Revenue	$	131,985		$	8,034		$	1,142		$	141,161
Adjusted EBITDA	$	17,707		$	633		$	(1,284	)	$	17,056



Six months ended June 30, 2024	Software		CES			All other		Total
Revenue	$	306,546		$	13,011		$	2,150		$	321,707
Adjusted EBITDA	$	63,380		$	352		$	(566	)	$	63,166


Six months ended June 30, 2023	Software		CES			All other		Total
Revenue	$	288,728		$	15,810		$	2,657		$	307,195
Adjusted EBITDA	$	60,479		$	1,042		$	(1,410	)	$	60,111


	Three Months Ended June 30,			Six Months Ended June 30,
	2024			2023			2024		2023
Reconciliation of Adjusted EBITDA to U.S. GAAP (loss) income before income taxes:
Adjusted EBITDA	$	17,348			$	17,056		$	63,166		$	60,111
Stock-based compensation expense		(17,355	)			(23,736	)		(33,354	)		(45,897	)
Interest expense		(1,604	)			(1,528	)		(3,180	)		(3,054	)
Depreciation and amortization		(9,938	)			(9,738	)		(19,557	)		(19,488	)
Special adjustments, interest income and other (1)		5,792				4,344			10,484			1,999
(Loss) income before income taxes	$	(5,757	)		$	(13,602	)	$	17,559		$	(6,329	)

(1)

The three months ended June 30, 2024, primarily includes $5.9million of interest income. The three months ended June 30, 2023, includes $4.0million of interest income, $1.3million of currency gains on acquisition-related intercompany loans, and a $1.0million loss from the mark-to-market adjustment of contingent consideration associated with the World Programming acquisition. The six months ended June 30, 2024, includes $11.6million of interest income, $0.9million of currency losses on acquisition-related intercompany loans, and a $0.2million loss from the mark-to-market adjustment of contingent consideration associated with the World Programming acquisition. The six months ended June 30, 2023, includes an $8.0million loss from the mark-to-market adjustment of contingent consideration associated with the World Programming acquisition, $6.9million of interest income, and $3.1million currency gains on acquisition-related intercompany loans.

Item 2. Management's Discussion and Analysis ofFinancial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this quarterly report and with our audited consolidated financial statements (and notes thereto) for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the SEC. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as "may," "can," "anticipate," "assume," "should," "indicate," "would," "believe," "contemplate," "expect," "seek," "estimate," "continue," "plan," "point to," "project," "predict," "could," "intend," "target," "potential," and other similar words and expressions of the future.

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

•

our ability and the time it takes to acquire new customers;

•

reduced spending on product design and development activities by our customers;

•

our ability to successfully renew our outstanding software licenses;

•

our ability to maintain or protect our intellectual property;

•

our ability to retain key executive members;

•

our ability to internally develop new software products, inventions and intellectual property;

•

our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments;

•

demand for our software by customers other than simulation engineering specialists and in additional industry verticals;

•

acceptance of our enhanced business model by customers and investors;

•

our susceptibility to factors affecting the automotive, aerospace and banking, financial services, and insurance (BFSI) industries where we derive a substantial portion of our revenues;

•

the accuracy of our estimates regarding expenses and capital requirements;

•

our susceptibility to foreign currency risks that arise because of our substantial international operations;

•

the significant quarterly fluctuations of our results; and

•

the uncertain effect of cyberattacks, data security incidents, future pandemics or events on our business, operating results, and financial condition, including disruption to our customers, our employees, the global economy, and financial markets.

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. For additional risks which could adversely impact our business and financial performance please see "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 22, 2024, and other information appearing elsewhere in our Annual Report on Form 10-K, this report on Form 10-Q and our other filings with the SEC.

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs, and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs, or projections will result or be achieved or accomplished.

Overview

We are a global leader in computational intelligence and we provide software and cloud solutions in simulation, high-performance computing (HPC), data analytics, and AI. We enable organizations across all industries to compete more effectively and drive smarter decisions in an increasingly connected world - all while creating a greener, more sustainable future.

Acquisitions

In April 2024, we acquired Cambridge Semantics, a modern data fabric provider and creator of the industry's leading analytical graph database. Cambridge Semantics' technologies will be integrated into the Altair RapidMiner platform.

In April 2024, we acquired Research in Flight, maker of FlightStream, which provides computational fluid dynamics (CFD) software with a large footprint in the aerospace and defense sector and a growing presence in marine, energy, turbomachinery, and automotive applications. The technology will be integrated into the Altair HyperWorks design and simulation platform.

Settlement of 2024 Notes

During the three months ended June 30, 2024, we settled the remaining balance of our convertible senior notes which matured on June 1, 2024 (the "2024 Notes") by paying cash for the principal amount of $81.7 million and issuing 796,817 shares of our Class A common stock, with a fair value of $70.8 million.

Factors Affecting our Performance

We believe that our future success will depend on many factors, including those described below. While these areas present significant opportunity, they also present risks that we must manage to achieve successful results. If we are unable to address these challenges, our business, operating results and prospects could be harmed. Please see "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023.

Seasonality and quarterly results

Our billings have historically been highest in the first and fourth quarters of any calendar year and may vary in future quarters. The timing of recording billings and the corresponding effect on our cash flows may vary due to the seasonality of the purchasing and payment patterns of our customers. In addition, the timing of the recognition of revenue, the amount and timing of operating expenses, including employee compensation, sales and marketing activities, and capital expenditures, may vary from quarter-to-quarter which may cause our reported results to fluctuate significantly. In addition, we may choose to grow our business for the long-term rather than to optimize for profitability or cash flows for a particular shorter-term period. This seasonality or the occurrence of any of the factors above may cause our results of operations to vary and our financial statements may not fully reflect the underlying performance of our business.

Integration of recent acquisitions

We believe that our recent acquisitions result in certain benefits, including expanding our portfolio of software and products and enabling us to better serve our customers' requests for data analytics and simulation technology. However, to realize some of these anticipated benefits, the acquired businesses must be successfully integrated. The success of these acquisitions will depend

in part on our ability to realize these anticipated benefits. We may fail to realize the anticipated benefits of these acquisitions for a variety of reasons.

Foreign currency fluctuations

Because of our substantial international operations, we are exposed to foreign currency risks that arise from our normal business operations, including in connection with our transactions that are denominated in foreign currencies, including the Euro, British Pound Sterling, Indian Rupee, Japanese Yen, and Chinese Yuan. To identify changes in our underlying business without regard to the impact of currency fluctuations, we evaluate certain of our operating results both on an as reported basis, as well as on a constant currency basis. For the remainder of our current fiscal year, we anticipate that our revenues and profit may be impacted by changes in foreign currency rates.

Business Segments

We have identified two reportable segments: Software and Client Engineering Services:

•

Software-Our Software segment includes software and software related services. The software component of this segment includes our portfolio of software products including our solvers and optimization technology products, high-performance computing software applications and support, hardware products, modeling and visualization tools, data analytics and analysis products, IoT platform and analytics tools, as well as support and the complementary software products we offer through our Altair Partner Alliance, or APA. The APA includes technologies ranging from computational fluid dynamics and fatigue, to manufacturing process simulation and cost estimation. The software component of this segment includes consulting, training, and implementation services. The software related services component of this segment includes technical services focused on product design and development expertise and analysis from the component level up to complete product engineering at any stage of the lifecycle.

•

Client Engineering Services-Our client engineering services, or CES, segment provides client engineering services to support our customers with long-term, ongoing expertise. We operate our CES business by hiring engineers and data scientists for placement at a customer site for specific customer-directed assignments. We employ and pay them only for the duration of the placement.

Our other businesses which do not meet the criteria to be separate reportable segments are combined and reported as "Other" which represents innovative services and products, including Toggled, our LED lighting business. Toggled is focused on developing and selling next-generation solid state lighting technology along with communication and control protocols based on our intellectual property for the direct replacement of fluorescent light tubes with LED lamps.

For additional information about our reportable segments and other businesses, see Note 13 in the Notes to consolidated financial statements in Item 1, Part I of this Quarterly Report on Form 10-Q.

Results of operations

Comparison of the three and six months ended June 30, 2024 and 2023

The following table sets forth the results of operations and the period-over-period percentage change in certain financial data for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,			Increase / (decrease)			Six Months Ended June 30,		Increase / (decrease)
(in thousands, except %'s)	2024			2023			%		2024		2023			%
Revenue:
Software	$	135,423			$	125,321			8	%	$	293,852			$	274,964				7	%
Engineering services and other		13,372				15,840			(16	%)		27,855				32,231				(14	%)
Total revenue		148,795				141,161			5	%		321,707				307,195				5	%
Cost of revenue:
Software		19,351				17,620			10	%		38,007				36,870				3	%
Engineering services and other		11,165				13,177			(15	%)		23,402				26,662				(12	%)
Total cost of revenue		30,516				30,797			(1	%)		61,409				63,532				(3	%)
Gross profit		118,279				110,364			7	%		260,298				243,663				7	%
Operating expenses:
Research and development		55,570				55,277			1	%		107,903				108,528				(1	%)
Sales and marketing		46,475				44,982			3	%		90,909				88,474				3	%
General and administrative		19,294				18,622			4	%		37,055				36,573				1	%
Amortization of intangible assets		7,629				7,625			0	%		15,067				15,439				(2	%)
Other operating (income) expense, net		(786	)			127		NM			(1,668	)			5,732			NM
Total operating expenses		128,182				126,633			1	%		249,266				254,746				(2	%)
Operating (loss) income		(9,903	)			(16,269	)		(39	%)		11,032				(11,083	)		NM
Interest expense		1,604				1,528			5	%		3,180				3,054				4	%
Other income, net		(5,750	)			(4,195	)		37	%		(9,707	)			(7,808	)			24	%
(Loss) income before income taxes		(5,757	)			(13,602	)		(58	%)		17,559				(6,329	)		NM
Income tax (benefit) expense		(610	)			8,678		NM			6,159				17,910				(66	%)
Net (loss) income	$	(5,147	)		$	(22,280	)		(77	%)	$	11,400			$	(24,239	)		NM
Other financial information:
Billings(1)	$	154,468			$	147,765			5	%	$	308,616			$	311,282				(1	%)
Adjusted EBITDA(2)	$	17,348			$	17,056			2	%	$	63,166			$	60,111				5	%
Net cash provided by operating activities									$	102,007		$	89,229				14	%
Free cash flow(3)									$	97,003		$	83,045				17	%

NM Not meaningful.

(1)

Billings consists of our total revenue plus the change in our deferred revenue, excluding deferred revenue from acquisitions. For more information about Billings and our other non-GAAP financial measures and reconciliations of our non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, see "Non-GAAP financial measures" contained herein.

(2)

We define Adjusted EBITDA as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, asset impairment charges and other special items as determined by management. For more information about Adjusted EBITDA and our other non-GAAP financial measures and reconciliations of our non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP, see "Non-GAAP financial measures" contained herein.

(3)

We define Free Cash Flow as net cash provided by operating activities less capital expenditures. For a reconciliation of Free Cash Flow, see "Non-GAAP financial measures" contained herein.

Change in Presentation of Revenue and Cost of Revenue

Effective in the first quarter of 2024, the Company changed the presentation of revenue and cost of revenue in its Consolidated Statements of Operations to combine the financial statement line items ("FSLIs") labeled "Software related services", "Client engineering services" and "Other" into one FSLI labeled "Engineering services and other." The change in presentation has been applied retrospectively and does not affect the software revenue, total revenue, software cost of revenue, or total cost of revenue amounts previously reported or have any effect on segment reporting.

Three months ended June 30, 2024 and 2023

Revenue

Software


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Software revenue	$	135,423			$	125,321		$	10,102	8	%
As a percent of consolidated revenue		91	%			89	%

Software revenue increased 8%, or 11% in constant currency, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was driven by growth in software license revenue primarily by new business and strong retention and expansions within existing accounts, with particular strength in the aerospace & defense vertical.

Engineering services and other


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Engineering services and other	$	13,372			$	15,840		$	(2,468	)	(16	%)
As a percent of consolidated revenue		9	%			11	%

The 16% decrease in engineering services and other revenue for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, was primarily due to lower customer demand for client engineering services during the period.

Cost of revenue

Software


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Cost of software revenue	$	19,351			$	17,620		$	1,731	10	%
As a percent of software revenue		14	%			14	%
As a percent of consolidated revenue		13	%			12	%

Cost of software revenue increased $1.7 million, or 10%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Employee compensation and related expense, travel costs and royalty expense increased $2.7 million, $0.3 million, and $0.2 million, respectively, for the three months ended June 30, 2024. These increases were partially offset by decreases in hardware costs and stock-based compensation expense of $1.0 million and $0.5 million, respectively.

Engineering services and other


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Cost of engineering services and other revenue	$	11,165			$	13,177		$	(2,012	)	(15	%)
As a percent of engineering services and other revenue		83	%			83	%
As a percent of consolidated revenue		8	%			9	%

Cost of engineering services and other revenue decreased 15% for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The decrease was primarily due to a decrease in employee compensation and related expense for the period.

Gross profit


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Gross profit	$	118,279			$	110,364		$	7,915	7	%
As a percent of consolidated revenue		79	%			78	%

Gross profit increased by $7.9 million, or 7%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. This increase in gross profit was primarily attributable to the increase in software revenue.

Operating expenses

Operating expenses, as discussed below, support all the products and services that we provide to our customers and, as a result, they are reported and discussed in the aggregate.

Research and development


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Research and development	$	55,570			$	55,277		$	293	1	%
As a percent of consolidated revenue		37	%			39	%

Research and development expenses increased by $0.3 million, or 1%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Employee compensation and related expense increased $3.3 million for the three months ended June 30, 2024, primarily due to increased headcount and compensation increases. These increases were partially offset by a decrease in stock-based compensation expense of $3.3 million.

Sales and marketing


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Sales and marketing	$	46,475			$	44,982		$	1,493	3	%
As a percent of consolidated revenue		31	%			32	%

Sales and marketing expenses increased by $1.5 million, or 3%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Employee compensation and related expense increased $3.2 million, primarily due to annual compensation increases and increased headcount, travel costs increased $0.4 million, and facilities costs increased $0.2 million for the three months ended June 30, 2024. These increases were partially offset by a decrease in stock-based compensation expense of $2.6 million.

General and administrative


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
General and administrative	$	19,294			$	18,622		$	672	4	%
As a percent of consolidated revenue		13	%			13	%

General and administrative expenses increased by $0.7 million, or 4%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Employee compensation and related expense increased $0.3 million and non-income taxes increased $0.2 million for the three months ended June 30, 2024.

Amortization of intangible assets


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Amortization of intangible assets	$	7,629			$	7,625		$	4	0	%
As a percent of consolidated revenue		5	%			5	%

Amortization of intangible assets remained consistent for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

Other operating (income) expense, net


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Other operating (income) expense, net	$	(786	)		$	127		$	913	NM
As a percent of consolidated revenue		(1	%)			0	%

Other operating (income) expense, net was $0.8 million of income for the three months ended June 30, 2024, compared to $0.1 million of expense for the three months ended June 30, 2023. We recognized $1.0 million and $0.9 million of grant income for the three months ended June 30 2024 and 2023, respectively. We recognized a $0.1 million loss on the mark-to-market adjustment of contingent consideration associated with the World Programming acquisition for the three months ended June 30, 2024, compared to a $1.0 million loss for the three months ended June 30, 2023.

Interest expense


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Interest expense	$	1,604			$	1,528		$	76	5	%
As a percent of consolidated revenue		1	%			1	%

Interest expense remained consistent for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

Other income, net


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Other income, net	$	(5,750	)		$	(4,195	)	$	1,555	37	%
As a percent of consolidated revenue		(4	%)			(3	%)

Other income, net increased $1.6 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Other income, net for the three months ended June 30, 2024, includes $5.9 million of interest income and $0.1 million in net foreign currency losses. Other income, net for the three months ended June 30, 2023, includes $4.0 million of interest income and $0.2 million in net foreign currency gains.

Income tax expense


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Income tax (benefit) expense	$	(610	)		$	8,678		$	(9,288	)	NM

The effective tax rate was 11% and -64% for the three months ended June 30, 2024 and 2023, respectively. The tax rate is affected by our status as a U.S. resident taxpayer, the tax rates in the U.S. and other jurisdictions in which we operate, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no benefit or expense is recognized due to a valuation allowance. The change in the effective tax rate for the three months ended June 30, 2024 as compared to June 30, 2023, was primarily attributable to the effects of tax elections made by the Company during the third quarter of 2023 that have a prospective impact on the Company's tax expense in 2024. The Company's effective tax rate for the three months ended June 30, 2024 and 2023 also includes net discrete expense of $0.1 million and $5.9 million, respectively, primarily related to changes in tax laws, withholding taxes on royalties, changes in reserves, changes in accruals for unremitted earnings and other adjustments.

Net loss


	Three Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Net loss	$	(5,147	)		$	(22,280	)	$	(17,133	)	(77	%)

Net loss was $5.1 million for the three months ended June 30, 2024, compared to a net loss of $22.3 million for the three months ended June 30, 2023. The reduction in net loss for the three months ended June 30, 2024, was a result of the increase in gross profit, the increase in interest income and the decrease in income tax expense as compared to the three months ended June 30, 2023.

Six months ended June 30, 2024 and 2023

Revenue

Software


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Software revenue	$	293,852			$	274,964		$	18,888	7	%
As a percent of consolidated revenue		91	%			90	%

Software revenue increased 7%, or 9% in constant currency, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was driven by growth in software license revenue primarily by new business and strong retention and expansions within existing accounts, with particular strength in the aerospace & defense vertical.

Engineering services and other


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Engineering services and other revenue	$	27,855			$	32,231		$	(4,376	)	(14	%)
As a percent of consolidated revenue		9	%			10	%

The 14% decrease in engineering services and other revenue for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was primarily due to lower customer demand for client engineering services during the period.

Cost of revenue

Software


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Cost of software revenue	$	38,007			$	36,870		$	1,137	3	%
As a percent of software revenue		13	%			13	%
As a percent of consolidated revenue		12	%			12	%

Cost of software revenue increased $1.1 million, or 3%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. Employee compensation and related expense, royalty expense, and travel costs increased $3.4 million, $0.5 million and $0.4 million, respectively, for the six months ended June 30, 2024. These increases were partially offset by decreases in hardware costs and stock-based compensation expense of $1.9 million and $1.2 million, respectively.

Engineering services and other


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Cost of engineering services and other revenue	$	23,402			$	26,662		$	(3,260	)	(12	%)
As a percent of engineering services and other revenue		84	%			83	%
As a percent of consolidated revenue		7	%			9	%

Cost of engineering services and other revenue decreased 12% for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The decrease was primarily due to a decrease in employee compensation and related expense for the period.

Gross profit


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Gross profit	$	260,298			$	243,663		$	16,635	7	%
As a percent of consolidated revenue		81	%			79	%

Gross profit increased by $16.6 million, or 7%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. This increase in gross profit was primarily attributable to the increase in software revenue.

Operating expenses

Operating expenses, as discussed below, support all the products and services that we provide to our customers and, as a result, they are reported and discussed in the aggregate.

Research and development


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Research and development	$	107,903			$	108,528		$	(625	)	(1	%)
As a percent of consolidated revenue		34	%			35	%

Research and development expenses decreased by $0.6 million, or 1%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. Stock-based compensation expense decreased $5.7 million for the six months ended June 30, 2024, partially offset by an increase in employee compensation and related expense of $4.5 million, primarily due to increased headcount and compensation increases. We also had increases in facilities costs of $0.4 million and depreciation expense of $0.2 million for the six months ended June 30, 2024.

Sales and marketing


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Sales and marketing	$	90,909			$	88,474		$	2,435	3	%
As a percent of consolidated revenue		28	%			29	%

Sales and marketing expenses increased by $2.4 million, or 3%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. Employee compensation and related expense increased $6.7 million, primarily due to annual compensation increases and increased headcount, travel costs increased $0.7 million, facilities costs increased $0.4 million, and advertising and trade show related expenses increased $0.3 million for the six months ended June 30, 2024. These increases were partially offset by a decrease in stock-based compensation expense and non-income tax expense of $5.7 million and $0.2 million, respectively.

General and administrative


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
General and administrative	$	37,055			$	36,573		$	482	1	%
As a percent of consolidated revenue		12	%			12	%

General and administrative expenses increased by $0.5 million, or 1%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, driven primarily by an increase in professional fees of $0.5 million.

Amortization of intangible assets


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Amortization of intangible assets	$	15,067			$	15,439		$	(372	)	(2	%)
As a percent of consolidated revenue		5	%			5	%

Amortization of intangible assets decreased by $0.4 million, or 2%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. Amortization decreased as a result of certain fully amortized intangible assets.

Other operating (income) expense, net


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Other operating (income) expense, net	$	(1,668	)		$	5,732		$	7,400	NM
As a percent of consolidated revenue		(1	%)			2	%

Other operating (income) expense, net was $1.7 million of income for the six months ended June 30, 2024, compared to $5.7 million of expense for the six months ended June 30, 2023. We recognized a $0.2 million loss on the mark-to-market adjustment of contingent consideration associated with the World Programming acquisition for the six months ended June 30, 2024, compared to an $8.0 million loss for the six months ended June 30, 2023. In addition, we had an $0.8 million decrease in grant income and $0.5 million increase in royalty income for the six months ended June 30, 2024.

Interest expense


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Interest expense	$	3,180			$	3,054		$	126	4	%
As a percent of consolidated revenue		1	%			1	%

Interest expense remained consistent for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

Other income, net


	Six Months Ended June 30,			Period-to-period change
(in thousands)	2024			2023			$		%
Other income, net	$	(9,707	)		$	(7,808	)	$	1,899	24	%
As a percent of consolidated revenue		(3	%)			(3	%)

Other income, net increased $1.9 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Other income, net for the six months ended June 30, 2024, includes $11.6 million of interest income and $1.9 million in net foreign currency losses. Other income, net for the six months ended June 30, 2023, includes $6.9 million of interest income and $0.9 million in net foreign currency gains.

Income tax expense


	Six Months Ended June 30,		Period-to-period change
(in thousands)	2024		2023			$		%
Income tax expense	$	6,159		$	17,910		$	(11,751	)	(66	%)

The effective tax rate was 35% and -283% for the six months ended June 30, 2024 and 2023, respectively. The tax rate is affected by our status as a U.S. resident taxpayer, the tax rates in the U.S. and other jurisdictions in which we operate, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no benefit or expense is recognized due to a valuation allowance. The change in the effective tax rate for the six months ended June 30, 2024 as compared to June 30, 2023, was primarily attributable to the effects of tax elections made by the Company during the third quarter of 2023 that have a prospective impact on the Company's tax expense in 2024. The Company's effective tax rate for the six months ended June 30, 2024 and 2023 also includes net discrete benefit of $0.3 million and expense of $11.6 million, respectively, primarily related to changes in tax laws, withholding taxes on royalties, changes in reserves, changes in accruals for unremitted earnings and other adjustments.

Net income (loss)


	Six Months Ended June 30,		Period-to-period change
(in thousands)	2024		2023			$		%
Net income (loss)	$	11,400		$	(24,239	)	$	35,639	NM

Net income was $11.4 million for the six months ended June 30, 2024, compared to a net loss of $24.2 million for the six months ended June 30, 2023. Net income for the six months ended June 30, 2024, was a result of the increase in gross profit, the decrease in the loss on the mark-to-market adjustment of contingent consideration, the increase in interest income and the decrease in income tax expense as compared to the six months ended June 30, 2023.

Non-GAAP financial measures

We monitor the following key non-GAAP (United States generally accepted accounting principles) financial and operating metrics to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. In analyzing and planning for our business, we supplement our use of GAAP financial measures with non-GAAP financial measures, including Billings as a liquidity measure, Adjusted EBITDA as a performance measure and Free Cash Flow as a liquidity measure.


	Three Months Ended June 30,		Six Months Ended June 30,
(in thousands)	2024		2023			2024			2023
Other financial data:
Billings	$	154,468		$	147,765			$	308,616			$	311,282
Adjusted EBITDA	$	17,348		$	17,056			$	63,166			$	60,111
Free Cash Flow						$	97,003			$	83,045

Billings.Billings consists of our total revenue plus the change in our deferred revenue, excluding deferred revenue from acquisitions during the period. Given that we generally bill our customers at the time of sale, but typically recognize a portion of the related revenue ratably over time, management believes that Billings is a meaningful way to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers.

Adjusted EBITDA.We define Adjusted EBITDA as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, asset impairment charges and other special items as determined by management. Our management team believes that Adjusted EBITDA is a meaningful measure of performance as it is commonly utilized by management and the investment community to analyze operating performance in our industry.

Free Cash Flow.Free Cash Flow is a non-GAAP measure that we calculate as cash flow provided by operating activities less capital expenditures. Management believes that Free Cash Flow is useful in analyzing our ability to service and repay debt, when applicable, and return value directly to stockholders.

These non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures included in the tables below, may provide a more complete understanding of factors and trends affecting our business. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures and are by definition an incomplete understanding of the Company and must be considered in conjunction with GAAP measures.

We believe that the non-GAAP measures disclosed herein are only useful as an additional tool to help management and investors make informed decisions about our financial and operating performance and liquidity. By definition, non-GAAP measures do not give a full understanding of the Company. To be truly valuable, they must be used in conjunction with the comparable GAAP measures. In addition, non-GAAP financial measures are not standardized. It may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. We strongly encourage investors to review our consolidated financial statements and the notes thereto in their entirety and not to rely on any single financial measure.

Reconciliation of non-GAAP financial measures

The following tables provides reconciliations of revenue to Billings, net loss to Adjusted EBITDA, and net cash provided by operating activities to Free Cash Flow:

Billings


	Three Months Ended June 30,			Six Months Ended June 30,
(in thousands)	2024			2023			2024		2023
Revenue	$	148,795			$	141,161		$	321,707		$	307,195
Ending deferred revenue		152,184				148,547			152,184			148,547
Beginning deferred revenue		(144,939	)			(141,943	)		(163,703	)		(144,460	)
Deferred revenue acquired		(1,572	)			-			(1,572	)		-
Billings	$	154,468			$	147,765		$	308,616		$	311,282

Adjusted EBITDA


	Three Months Ended June 30,			Six Months Ended June 30,
(in thousands)	2024			2023			2024		2023
Net (loss) income	$	(5,147	)		$	(22,280	)	$	11,400		$	(24,239	)
Income tax (benefit) expense		(610	)			8,678			6,159			17,910
Stock-based compensation expense		17,355				23,736			33,354			45,897
Interest expense		1,604				1,528			3,180			3,054
Depreciation and amortization		9,938				9,738			19,557			19,488
Special adjustments, interest income and other(1)		(5,792	)			(4,344	)		(10,484	)		(1,999	)
Adjusted EBITDA	$	17,348			$	17,056		$	63,166		$	60,111

(1)

The three months ended June 30, 2024, primarily includes $5.9 million of interest income. The three months ended June 30, 2023, includes $4.0 million of interest income, $1.3 million of currency gains on acquisition-related intercompany loans, and a $1.0 million loss from the mark-to-market adjustment of contingent consideration associated with the World Programming acquisition. The six months ended June 30, 2024, includes $11.6 million of interest income, $0.9 million of currency losses on acquisition-related intercompany loans, and a $0.2 million loss from the mark-to-market adjustment of contingent consideration associated with the World Programming acquisition. The six months ended June 30, 2023, includes an $8.0 million loss from the mark-to-market adjustment of contingent consideration associated with the World Programming acquisition, $6.9 million of interest income, and $3.1 million currency gains on acquisition-related intercompany loans.

Free Cash Flow


	Six Months Ended June 30,
(in thousands)	2024			2023
Net cash provided by operating activities	$	102,007			$	89,229
Capital expenditures		(5,004	)			(6,184	)
Free cash flow	$	97,003			$	83,045

Recurring software license rate

A key factor to our success is our recurring software license rate, which we measure through Billings, primarily derived from annual renewals of our existing subscription customer agreements. Recurring revenue streams allow us to create more consistent, predictable cash flows and drive greater long-term customer value. We believe the recurring software license rate is a key factor to our success and we monitor this measure to ensure our go-to-market strategy is driving long-term success of our business.

We calculate our recurring software license rate for a particular period by dividing (i) the sum of software term-based license Billings, software license maintenance Billings, and 20% of software perpetual license Billings which we believe approximates maintenance as an element of the arrangement by (ii) the total software license Billings including all term-based subscriptions, maintenance, and perpetual license billings from all customers for that period. The recurring software license rate was 93% and 94%, respectively, for the six months ended June 30, 2024 and 2023. The recurring software license rate may vary from period to period.

Liquidity and capital resources

As of June 30, 2024, our principal sources of liquidity were $507.0 million in cash and cash equivalents and $200.0 million availability on our credit facility. We have outstanding debt in the form of our 2027 convertible notes ("2027 Notes") with a $230.0 million principal amount as of June 30, 2024.

During the period ended June 30, 2024, the conditions allowing holders of the 2027 Notes to convert were not met. Therefore, the 2027 Notes were classified as long-term debt on the consolidated balance sheet as of June 30, 2024. We have the ability to settle the 2027 Notes in cash, shares of our common stock, or a combination of cash and shares of our common stock at our own election.

As of June 30, 2024, approximately $49.1 million remained available for repurchase under our stock repurchase program.

We continue to evaluate possible acquisitions and other strategic transactions designed to expand our business. As a result, our expected uses of cash could change, our cash position could be reduced, or we may incur additional debt obligations to the extent we complete additional acquisitions or strategic transactions.

Our existing cash and cash equivalents may fluctuate during fiscal 2024 due to changes in our planned cash expenditures, including changes in incremental costs such as direct costs and integration costs related to acquisitions. Cash from operations could also be affected by various risks and uncertainties, including but not limited to, the effects of geopolitical events. It is possible that certain customers may unilaterally decide to extend payments on accounts receivable, however our customer base is comprised primarily of larger organizations with typically strong liquidity and capital resources.

We believe that our existing cash balances, together with funds generated from operations and amounts available under our credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements for the next twelve months. We also believe that our financial resources, along with managing discretionary expenses, will allow us to manage our business operations for the foreseeable future and withstand geopolitical events, which could include reductions in revenue and delays in payments from customers and partners. We will continue to evaluate our financial position as developments evolve.

Revolving credit facility

As of June 30, 2024, there were no outstanding borrowings under our 2019 Amended Credit Agreement and there was $200.0 million available for future borrowing. The 2019 Amended Credit Agreement is available for general corporate purposes, including working capital, capital expenditures and permitted acquisitions.

For additional information about the 2019 Amended Credit Agreement, refer to our consolidated financial statements for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the SEC on February 22, 2024.

Cash flows

As of June 30, 2024, we had cash and cash equivalents of $507.0 million available for working capital purposes, acquisitions, and capital expenditures; $363.7 million of this amount was held in the United States and $135.8 million was held in the APAC and EMEA regions with the remainder held in Canada, Mexico, and South America.

Other than statutory limitations, there are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Altair. Based on our current liquidity needs and repatriation strategies, we expect that we can manage our global liquidity needs without material adverse tax implications.

The following table summarizes our cash flows for the periods indicated:


	Six Months Ended June 30,
(in thousands)	2024			2023
Net cash provided by operating activities	$	102,007			$	89,229
Net cash used in investing activities		(19,082	)			(8,357	)
Net cash (used in) provided by financing activities		(40,139	)			21,001
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(3,295	)			(44	)
Net increase in cash, cash equivalents and restricted cash	$	39,491			$	101,829

Net cash provided by operating activities

Net cash provided by operating activities for the six months ended June 30, 2024, was $102.0 million, which reflects an increase of $12.8 million compared to the six months ended June 30, 2023. This increase was primarily the result of improvements in our operating results for the six months ended June 30, 2024, as compared to the six months ended June 30, 2024.

Net cash used in investing activities

Net cash used in investing activities for the six months ended June 30, 2024, was $19.1 million, which reflects an increase of $10.7 million compared to the six months ended June 30, 2023. For the six months ended June 30, 2024, we paid $13.7 million related to business acquisitions.

Net cash (used in) provided by financing activities

Net cash used in financing activities for the six months ended June 30, 2024, was $40.1 million, compared to net cash provided by financing activities for the six months ended June 30, 2023, of $21.0 million. For the six months ended June 30, 2024, we paid $81.7 million for the settlement of the remaining balance of our 2024 convertible notes and we received proceeds of $37.2 million from the exercise of common stock options. For the six months ended June 30, 2023, we received proceeds of $23.5 million from the exercise of common stock options and made payments of $6.3 million for the repurchase of our Class A common stock.

Effect of exchange rate changes on cash, cash equivalents and restricted cash

There was an adverse effect of exchange rate changes on cash, cash equivalents and restricted cash of $3.3 million for the six months ended June 30, 2024. There was a minimal effect of exchange rate changes on cash, cash equivalents and restricted cash for the six months ended June 30, 2023.

Commitments

We settled the remaining balance of our 2024 convertible senior notes during the six months ended June 30, 2024. There were no other material changes in our commitments as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Recently issued accounting pronouncements

See Note 2 in the Notes to consolidated financial statements in Item 1, Part I of this Quarterly Report on Form 10-Q for a full description of the recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain global market risks, including foreign currency exchange risk and interest rate risk associated with our revolving credit facility.

Foreign Currency Risk

As a result of our substantial international operations, we are exposed to foreign currency risks that arise from our normal business operations, including in connection with our transactions that are denominated in foreign currencies. In addition, we translate sales and financial results denominated in foreign currencies into United States dollars for purposes of our consolidated financial statements. As a result, appreciation of the United States dollar against these foreign currencies generally will have a negative impact on our reported revenue and operating income while depreciation of the United States dollar against these foreign currencies will generally have a positive effect on reported revenue and operating income.

As of June 30, 2024, we do not have any foreign currency hedging contracts. Based on our current international operations, we do not plan on engaging in hedging activities in the near future.

Market Risk and Market Interest Risk

In June 2022, we issued $230.0 million aggregate principal amount of 1.750% convertible senior notes due in 2027. The 2027 Notes have fixed annual interest rates at 1.750% and, therefore, we do not have economic interest rate exposure on our 2027 Notes. However, the value of the 2027 Notes is exposed to interest rate risk. Generally, the fair market value of our fixed interest rate 2027 Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the 2027 Notes is affected by our stock price. The fair value of the 2027 Notes will generally increase as our Class A common stock price increases in value and will generally decrease as our Class A common stock price declines in value. We carry the 2027 Notes at face value less unamortized issuance costs on our balance sheet, and we present the fair value for required disclosure purposes only.

As of June 30, 2024, we had cash, cash equivalents and restricted cash of $507.1 million, consisting primarily of bank deposits and money market funds. As of June 30, 2024, we had no outstanding borrowings under our 2019 Amended Credit Agreement. Such interest-bearing instruments carry a degree of interest rate risk; however, historical fluctuations of interest expense have not been significant.

Interest rate risk relates to the gain/increase or loss/decrease we could incur on our debt balances and interest expense associated with changes in interest rates. Changes in interest rates would impact the amount of interest income we realize on our invested cash balances. It is our policy not to enter into derivative instruments for speculative purposes, and therefore, we hold no derivative instruments for trading purposes.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed in periodic reports filed with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13(a)-15(e) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2024.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Other legal proceedings

From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of third-party proprietary rights, or to establish and enforce our proprietary rights. The results of any current or future litigation cannot be predicted with certainty and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company's Annual Report on 10-K for the year ended December 31, 2023.

Item 2. UnregisteredSales of Equity Securities and Use of Proceeds

On April 15, 2024, in connection with our acquisition of Research in Flight, we agreed to issue to the stockholders of Research in Flight an aggregate of 18,000 shares of the Company's Class A Common Stock, par value $0.0001 per share, with 9,000 shares issuable on each of April 15, 2025 and April 2026, subject to potential reduction in certain circumstances. All shares are subject to customary securities law restrictions on transferability. All shares were issued without registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(a)(2) of the Securities Act. Research in Flight's existing stockholders provided customary representations for a private placement of securities and agreed to customary restrictions on transferability.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. MineSafety Disclosures

Not applicable.

Item 5. Other Information

Insider Trading Arrangements and Policies

During the quarter ended June 30, 2024, none of the Company's directors or officers adoptedor terminateda "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Regulation S-K, Item 408, that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

Item 6. Exhibits


No.		Description



31.1*		Certification of the Chief Executive Officer of Altair Engineering Inc. pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended

31.2*		Certification of the Chief Financial Officer of Altair Engineering Inc. pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended

32.1**		Certification of the Chief Executive Officer and Chief Financial Officer of Altair Engineering Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents


104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, has been formatted in Inline XBRL

* Filed herewith.

** The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ALTAIR ENGINEERING INC.

Date: August 1, 2024	By:	/s/ James R. Scapa
		James R. Scapa
		Chief Executive Officer (Principal Executive Officer)


Date: August 1, 2024
	By:	/s/ Matthew Brown
		Matthew Brown
		Chief Financial Officer (Principal Financial Officer)

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